NOTE: December Cocoa, Coffee and Cotton have all entered their expiration cycle. Speculators should be trading contracts other than December 2009. I recommend the March 2010 contract where volume and open interest are highest. I will be discussing the March 2010 contracts in these commodities this week.
It seems as if everything has turned to gold! Just about every commodity market is experiencing inflows of investor capital. However this King Midas approach to trading commodities should be monitored very closely. What is gold today could be lead tomorrow. Being one that focuses on supply / demand fundamentals and technical analysis of the markets on an individual basis, I have never experienced this before. Keep your eye on gold and the U.S. dollar. If gold continues to the upside while the dollar heads lower commodities are going higher. At least that's what I'm told. My job is to present the facts and I will continue to do just that.
The Reuters Jeffries Commodity Channel Index has broken above 471.90. This is the 50% retracement area of the 2008 - 2009 deleveraging break. As I write this it is trading at 478.50. If it holds here another leg up in commodities could very well be starting. It's quite possible that much of this market strength is being created by the inventory cycle. I will outline that cycle in next week's issue. If you would like an explanation sooner, just give me a call. 800.611.6974
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Life Time Trading Range 41.50 Cents - $337.50 per Pound
Trades on The ICE 2:30 AM - 1 PM CDT
My how prices change! The coffee market has taken on quite a bullish tone over the last few trading sessions. The supply of high quality Brazilian Coffee is very tight. Adding to this tightness is the Brazilian government's plan to purchase nearly one million bags of coffee this month for storage. This alone has caused the basis for Brazilian coffee to jump as much as ten cents! The Columbian harvest has come in at much lower levels than expected. This has all resulted in firm demand for Central American Coffee. Later this summer (South American Summer) the Brazilian government's put program for coffee growers will begin. This program could add in excess of one hundred seventy five million bags to those already in storage. Other producers have experienced a drop off in exports. This market is poised to work higher with an objective of 150.00. Buy Coffee on dips or consider purchasing call spreads.
Keep in mind that a full blown bull move in Coffee could take prices above 200.00! See chart below.
Life Time Trading Range $444 - $5379 per Tonne
Trades on The ICE 3 AM - 1 PM CDT
All this talk of run down plantations, political unrest and wet weather seems to have caused the Cocoa trees to flourish!
The overly large quantity of Cocoa arriving at Ivory Coast ports indicates that the rainy weather improved the Cocoa crop. As of November 15th 256,000 tons had arrived. Last year that figure was 161,554. Yields are far in excess of expectations.
Cocoa is presently rebounding after taking a hit of close to 4.00 per tonne. The low of the move was 31.02. This rally could take the market somewhat higher. Resistance above the market is 34.40. To participate sell into sharp rallies or purchase put spreads.
As illustrated below you can see that the majority of the worlds Cocoa supply originates in Africa. South America and Southeast Asia provide us with large quantities as well. All Cocoa growing regions are within 20 degrees of the equator.
Life Time Trading Range 2.30 Cents - 66.00 Cents per Pound
Trades on The ICE 2:30 AM - 1 PM CDT
Sugar is plagued by a shortage of supply that is not going away anytime soon. India will be importing four to eight million tonnes of Sugar this year. India's yearly sugar consumption is estimated at twenty three million tonnes. At this early stage the yield of next seasons Sugar crop has been guesstimated to be nineteen million tonnes. The countries agriculture ministers are predicting a shortfall of four million tonnes. Wedding season in India will soon be here and usage of Sugar will climb dramatically at that time. Rainy weather is wreaking havoc with Sugar crushers in India's most important sugar producing area causing India's spot sugar prices to spike higher.
High Sugar prices have created a situation where refining sugar for consumption is more profitable than using Sugar for ethanol production. Brazil powers a large part of its vehicle fleet with ethanol that is usually produced from Brazilian sugar. Well, Brazil has made plans to import a large amount of ethanol this year as the profit from refining sugar for consumption is much more profitable.
The tightness in the sugar supply is very similar to supply deficits that occurred in the 1970's and 1980's. Much higher prices for Sugar could be on the horizon. Buy on dips or consider purchasing bull call spreads to participate. Refer to the chart below.
Do not trade without protective strategies such as stops and or options.
Life Time Trading Range $26.84 - $117.20 per Pound
Trades on The ICE 8 PM - 1:30 PM CDT (Next Day)
U.S. and world ending stocks are declining and the macroeconomic situation is continuing to improve. One would think Cotton usage would be increasing but that just isn't happening. The market is in a distinct uptrend but without an increase in exports rally attempts should be capped by trade sellers. Resistance lies at 75.00 in the March contract. Weather in key growing areas has turned dry which will help speed up the harvest. If there was damage to the crop due to rainy weather it should now begin to make itself known. Last week's USDA export number was 117,300 tonnes. This week's number, released this morning came in at 235,700 tonnes. This is a better number than last week but had been expected. If demand does not improve and open interest stabilize and begin to increase lower Cotton prices are on the horizon.
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